37146 Federal Register / Vol. 63, No. 131 /Thursday, July 9, 1998 / Notices

PP&L was one of the licensees with

which the NRC staff held meetings. At

these meetings, the NRC staff reviewed

with PP&L the schedule of Thermo-Lag

corrective actions described in the PP&L

submittals to the NRC dated April 15,

1993; February 3 and December 22,

1994; August 2, 1995; February 4, 1997;

and January 6 and May 4, 1998. Based

on the information submitted by PP&L,

the NRC staff has concluded that the

schedules presented by PP&L are

reasonable. This conclusion is based on

the (1) amount of installed Thermo-Lag,

(2) the complexity of the plant-specific

fire barrier configurations and issues,

and (3) the need to perform certain plant

modifications during outages as

opposed to those that can be performed

while the plant is at power. In order to

remove compensatory measures such as

fire watches, it has been determined that

resolution of the Thermo-Lag corrective

actions by PP&L must be completed in

accordance with current PP&L’s

schedules. By letter dated May 19, 1998,

the NRC staff notified PP&L of its plan

to incorporate PP&L’s schedule

commitment into a requirement by

issuance of an Order and requested

consent from the Licensee. By letter

dated June 3, 1998, the Licensee

provided its consent to issuance of a

Confirmatory Order.

III

The Licensee’s commitment as set

forth in its letter of June 3, 1998, is

acceptable and is necessary for the NRC

to conclude that public health and

safety are reasonably assured. To

preclude any schedule slippage and to

assure public health and safety, the NRC

staff has determined that the Licensee’s

commitment in its June 3, 1998, letter be

confirmed by this Order. The Licensee

has agreed to this action. Based on the

above, and the Licensee’s consent, this

Order is immediately effective upon

issuance.

IV

Accordingly, pursuant to sections

103, 161b, 161i, 161o, 182, and 186 of

the Atomic Energy Act of 1954, as

amended, and the Commission’s

regulations in 10 CFR 2.202 and 10 CFR

Part 50, IT IS HEREBY ORDERED,

effective immediately, that:

Pennsylvania Power & Light Company

shall complete final implementation of

Thermo-Lag 330–1 fire barrier corrective

actions at Susquehanna Steam Electric

Station, Units 1 and 2, described in the

Pennsylvania Power & Light Company’s

submittals to the NRC dated April 15, 1993;

February 3 and December 22, 1994; August

2, 1995; February 4, 1997; and January 6 and

May 4, 1998, by completion of the April 2000

refueling outage for SSES, Unit 1. Overall

work package closeout will be completed by

the end of December 2000.

The Director, Office of Nuclear Reactor

Regulation, may relax or rescind, in

writing, any provisions of this

Confirmatory Order upon a showing by

the Licensee of good cause.

V

Any person adversely affected by this

Confirmatory Order, other than the

Licensee, may request a hearing within

20 days of its issuance. Where good

cause is shown, consideration will be

given to extending the time to request a

hearing. A request for extension of time

must be made in writing to the Director,

Office of Nuclear Reactor Regulation,

U.S. Nuclear Regulatory Commission,

Washington, D.C. 20555, and include a

statement of good cause for the

extension.

Any request for a hearing shall be

submitted to the Secretary, U.S. Nuclear

Regulatory Commission, Attention:

Chief, Rulemaking and Adjudications

Staff, Washington, D.C. 20555. Copies of

the hearing request shall also be sent to

the Director, Office of Nuclear Reactor

Regulation, U. S. Nuclear Regulatory

Commission, Washington, D. C. 20555,

to the Deputy Assistant General Counsel

for Enforcement at the same address, to

the Regional Administrator, NRC Region

I, 475 Allendale Road, King of Prussia,

Pennsylvania 19406–1415 and to the

Licensee. If such a person requests a

hearing, that person shall set forth with

particularity the manner in which his/

her interest is adversely affected by this

Order and shall address criteria set forth

in 10 CFR 2.714(d).

If a hearing is requested by a person

whose interest is adversely affected, the

Commission will issue an Order

designating the time and place of any

such hearing. If a hearing is held, the

issue to be considered at such hearing

shall be whether this Confirmatory

Order should be sustained.

In the absence of any request for

hearing, or written approval of an

extension of time in which to request a

hearing, the provisions specified in

Section IV above shall be final 20 days

from the date of this Order without

further order or proceedings. If an

extension of time for requesting a

hearing has been approved, the

provisions specified in Section IV shall

be final when the extension expires if a

hearing request has not been received.

An answer or a request for hearing shall

not stay the immediate effectiveness of

this Order.

For the Nuclear Regulatory Commission.

Dated at Rockville, Maryland this 2nd day

of July 1998.

Samuel J. Collins,

Director, Office of Nuclear Reactor

Regulation.

[FR Doc. 98–18228 Filed 7–8–98; 8:45 am]

BILLING CODE 7590–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40161; International Series

Release No. 1144; File No. 10–101]

Tradepoint Financial Networks plc;

Notice of Application for Limited

Volume Exemption From Registration

as an Exchange Under Section 5 of the

Securities Exchange Act

July 2, 1998.

AGENCY: Securities and Exchange

Commission.

ACTION: Request for Comments.

SUMMARY: The Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

is soliciting comments on whether to

grant an exemption from registration as

an exchange under Section 5 of the

Securities Exchange Act of 1934

(‘‘Exchange Act’’) to Tradepoint

Financial Networks plc on the basis of

expected low volume.

DATES: Comments must be received on

or before August 10, 1998.

ADDRESSES: Interested persons should

submit three copies of their written

data, views and opinions to Jonathan G.

Katz, Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Comments

may also be submitted electronically at

the following e-mail address: rulecomments@sec.gov. All comment letters

should refer to File No. 10–101; this file

number should be included on the

subject line if comments are submitted

using e-mail. All submissions will be

available for public inspection and

copying at the Commission’s Public

Reference Room, Room 1024, 450 Fifth

Street, N.W., Washington, D.C. 20549.

Electronically submitted comment

letters will be posted on the

Commission’s Internet web site (http://

www.sec.gov).

FOR FURTHER INFORMATION CONTACT: For

questions or comments regarding this

release, contact: Sheila C. Slevin,

Assistant Director, at (202) 942–0796 or

Constance B. Kiggins, Special Counsel,

at (202) 942–0059; Division of Market

Regulation, Securities and Exchange

Commission, Mail Stop 10–1, 450 Fifth

Street, N.W., Washington, D.C. 20549.

For questions or comments regarding

corporate disclosure and securities
Federal Register / Vol. 63, No. 131 /Thursday, July 9, 1998 / Notices 37147

1See Letter from Joseph S. Cohn, Davis Polk &

Wardwell, counsel for the Company, to Jonathan G.

Katz, Secretary, dated November 20, 1997, available

in the Commission’s Public Reference Room. On

April 6, 1998, the Company filed an amendment to

the filing. On June 30, 1998, the Company filed a

second amendment to the filing. Both amendments

are also available in the Commission’s Public

Reference Room.

2This description is based upon the material

representations made by the Company in its

application requesting the exemption, see supra

note 1.

3These requirements are set forth in Tradepoint

Market Rule 3.4 (see Exhibit A(2)(b) of the

Company’s application). Requirements include that

the applicant is authorized to conduct investment

business; that the applicant has arranged for

clearing arrangements with an Exchange Clearing

Member (a Member of the Exchange that is also a

member of the London Clearing House, as more

fully described below); and that the applicant meets

the standards of financial responsibility and

operational capability prescribed by the Exchange.

4The Company is listed on the Vancouver Stock

Exchange and on the Alternative Investment Market

of the LSE. Unlike U.S. national securities

exchanges, which are owned by their members, the

Exchange is a publicly held, for-profit company.

5All individuals who have access to the

Tradepoint System must have completed training

from representatives of the Exchange in the use of

the System.

6Access from terminals other than Bloomberg in

the U.S. would be considered a material change to

the manner in which the Exchange is offering its

services in the U.S. and would require SEC

notification.

7The ‘‘balance price’’ is calculated so that the

maximum possible number of buy and sell orders

in the auction will be matched.

registration issues raised in this release,

contact Paul Dudek, Office Chief, at

(202) 942–2990, Division of Corporation

Finance, Securities and Exchange

Commission, Mail Stop 3–2, 450 Fifth

Street, N.W., Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION:

I. Introduction

Tradepoint Financial Networks plc

(the ‘‘Company’’ or the ‘‘Exchange’’)

operates as a securities exchange from

facilities in London under the marketing

name Tradepoint Stock Exchange. It is

a Recognized Investment Exchange

under section 37(3) of the U.K.

Financial Services Act 1986. The

Exchange does not have a physical

trading floor; it is a screen-based

electronic market for the trading of

securities (the ‘‘Tradepoint System’’).

All of the securities currently traded

through the Tradepoint System are

listed on the London Stock Exchange

(the ‘‘LSE’’), which is the primary

market for those securities.

By letter dated November 20, 1997,

the Company filed with the

Commission, pursuant to Section 5 of

the Exchange Act, an application for

exemption under Section 5 from

registration as a national securities

exchange under Section 6 of the

Exchange Act if the Company operates

the Tradepoint System in the United

States. The Company anticipates that

the Exchange will account for limited

volume in trading of securities.1

II. Description of the Tradepoint

System 2

The Exchange is an alternative market

to the LSE. As mentioned above, all of

the stocks currently traded on the

Exchange are listed on the LSE. The

Exchange does not ‘‘list’’ securities; it

offers trading only in securities listed on

other exchanges, and presently offers

trading only in certain securities listed

on the LSE.

From its facilities in London, the

Exchange supplies automated trading

services to market-makers, brokerdealers and institutional investors

(collectively, ‘‘Members’’) on identical

terms and conditions. Potential

Members must meet the eligibility

requirements of the Exchange.3

Members are not ‘‘members’’ of the

Exchange in the sense that a member of

a national securities exchange is a

member: status as a Member of the

Exchange does not carry voting rights or

any other rights, other than the right to

trade using the Tradepoint System.4

The Exchange provides to its

Members an electronic, order-driven

market that handles order entry and

management, information display,

matching, execution, and immediate

trade publication and settlement

message routing. Members are able to

access the current market position in

any security traded on the Exchange;

monitor selected market information

provided by the Exchange in real time;

enter or revise orders; send orders to the

relevant instant auction and/or periodic

auction books for execution (described

below); set up, access, and request

trading and market reports; and input

settlement routing instructions.

In addition to these functions, the

Exchange also supports order processing

and management of the order book;

order book display and updating;

maintenance of individual trading status

books; maintenance and updating of

individual stock watch lists; and market

supervision, surveillance and

compliance. Most of these functions are

controlled by the Exchange, but allow

for some customization by the Member.

The Exchange maintains an electronic

order book for each traded security.

Members enter a bid or an offer directly

into the Tradepoint System. Orders have

time/price priority. Those orders with

the best bid or offer price are prioritized

according to the time they are entered

into the Tradepoint System. Prices and

volumes are displayed automatically

and simultaneously to all Members.

Members have the option to display

their entire order, or they may choose to

display only part of their order;

however, the minimum size for any

order is one thousand shares. If only

part of the order is displayed, the

Member may direct the Tradepoint

System to update the order when certain

conditions have been met, such as when

their displayed order has been filled.

Orders that are not displayed are at the

end of the queue for time priority, and

when an undisplayed order becomes a

displayed order, it goes into the

electronic order book at the end of the

queue. The Tradepoint System is

anonymous; the names of the Members

are not displayed to other Members and

are revealed only upon clearance and

settlement.

In order for a Member to access the

Tradepoint System, he or she must have

a Personal Identification Number

(‘‘PIN’’), which is assigned by the

Exchange.5 Access to the Tradepoint

System in the United Kingdom is

currently available through an internal

network of personal computers (‘‘PCs’’),

via a stand alone PC, through a separate

application on an existing Reuters RT

terminal, ICV–Topic 3 Trader

workstation, through a Liberty

InterTrade Direct Screen, or through a

Bloomberg terminal. Access to the

Tradepoint System in the United States

would be exclusively through

Bloomberg terminals.6 In the future, the

Exchange’s screens may be accessible

from other distributors of information

services.

The Exchange operates two types of

auctions: instant and periodic. A

security may be traded in either an

instant auction or a periodic auction,

but not both. In the instant auction,

orders are matched electronically, in

full or in part, at the posted and

accepted price. Execution is automatic

and continuous. Thus, a Member’s

orders are executed as soon as a contraside order reaches the order book.

The periodic auction is used for

smaller capitalization and infrequently

traded securities. It allows orders for

these securities to accumulate over a

period of time at the end of which the

central computer matches qualifying

buy and sell orders at a ‘‘balance

price.’’ 7 All transactions in a given

periodic auction take place at the

balance price; during the period leading

up to the auction, a projected balance

price is recalculated each time a new

order is entered into the Tradepoint

System. This projected balance price is

continuously displayed during the time

before the auction. Orders can be
37148 Federal Register / Vol. 63, No. 131 /Thursday, July 9, 1998 / Notices

8Presently, the Exchange has suspended periodic

auctions. When there is sufficient interest among

Members, periodic auctions will resume. Members

would be notified electronically as to the time a

periodic auction would commence.

9 If there is a bid or an offer on the Exchange’s

book that will match either side of the cross trade,

however, that bid or offer will have priority over

the bid or offer that is part of the cross, and will

receive execution. As a result, half of the cross trade

(or some portion of that side of the trade) would be

left on the Exchange’s book.

10After a trade is registered with the LCH, the

LCH becomes the counterparty to both sides of that

trade, guaranteeing settlement.

11 17 CFR 230.144A.

12The Exchange generally will not provide access

to U.S. Members to securities for which there is a

U.S. transfer agent or which are eligible for deposit

at a registered clearing agency. However, U.S.

Members may have access to such securities if the

annual trading volume in the U.S. of such securities

is less than ten percent of the securities’ annual

worldwide trading volume.

13Thus, the Exchange would be available to U.S.

Members from 7:30 a.m. to 5:30 p.m. London time

(2:30 a.m. to 12:30 p.m. Eastern Standard Time).

14See Exhibit N, Sections 4 and 6, of the

Company’s Form 1 filing for the specific fees

charged by the Exchange.

15 15 U.S.C. 78e (1988). The Commission has

published a release in order to solicit the public’s

comments on proposed rules that would permit,

among other things, alternative trading systems to

register as broker-dealers or as exchanges. See

Exchange Act Release No. 39884 (April 17, 1998),

63 FR 23504 (April 29, 1998) (‘‘Regulation ATS

Proposing Release’’). The limited volume

exemption remains another choice for such

systems. The Commission believes an exemption on

the basis of low volume would only be appropriate,

however, for a foreign market, such as the

Exchange, that is also a low volume market in its

home country. See the discussion at note 27 infra.

16 15 U.S.C. 78(e) (1988).

17See Exchange Act Release No. 28899 (Feb. 20,

1991), 56 FR 8377 (February 28, 1991). AZX was

originally named Wunsch Auction Systems, Inc.

amended and withdrawn up to the

commencement of the periodic auction.

Bids above and offers below the balance

price are executed at the balance price

(lowest offers and highest bids are filled

first). Orders at the balance price are

matched on a time priority basis, to the

extent that there are equal bids and

offers. Bids below and offers above the

balance price are not filled, but they

may remain on the Tradepoint System

after the auction to be carried forward

to the next auction at the Member’s

discretion. Periodic auctions take place

at specified times during the trading day

with the frequency determined by

trading patterns in individual securities

as well as other market requirements.

There is no set time for the periodic

auctions, and there is no set number of

periodic auctions. According to the

Exchange, the frequency of the periodic

auctions is designed to maximize

liquidity in each security.8

Members of the Exchange are also

able to enter ‘‘cross trades.’’ Cross trades

are trades between two customers of the

same firm that take place between the

posted bid and offer. These orders are

exposed to the Exchange’s book prior to

the cross. To effect a cross trade, a

Member will simultaneously enter a bid

and an offer for a security, which will

match (‘‘cross’’) after exposure to the

electronic order book.9 Thus, cross

trades are entered into the Tradepoint

System by the firm essentially for

reporting purposes.

In addition, the Exchange may create

a ‘‘specialist’’ capability for some of the

stocks traded on the Exchange. The

Exchange would enter into an

arrangement with a specific Member

who would commit to providing

liquidity with respect to a particular

security (‘‘Committed Liquidity

Provider’’ or ‘‘CLP’’). The CLP would

function in a manner similar to that of

a specialist on a U.S. exchange. The CLP

would enter a bid or an offer if none

exists, or if the spread was greater than

a maximum limit agreed upon by the

Exchange and the CLP, or when the size

of an order was smaller than an agreed

upon minimum. There would be no

more than one CLP for any security, and

there would be no requirement that

every security have a CLP. These orders

would be subject to the same price and

time priorities as other system orders.

As payment, the CLP would receive a

percentage of the Exchange’s net

transaction fees resulting from

execution of the orders entered by the

CLP.

All trades executed on the Exchange

(including those involving a U.S.

Member) must be registered with the

London Clearing House (‘‘LCH’’) for

clearance and settlement through

CREST (with the exception of cross

trades, which are settled as described

below).10 All Members (including U.S.

Members) must either be a member of

the LCH (‘‘Clearing Member’’) or have

entered into a direct or indirect clearing

arrangement with a Clearing Member

(‘‘Non-Clearing Member’’). It is expected

that U.S. Members would be NonClearing Members. Cross trades are

settled directly through CREST by the

Member that entered the trade (or by a

sponsor of the Member that is a member

of CREST). The LCH is not involved in

the clearance and settlement of cross

trades.

The settlement cycle in Great Britain

is five business days, as opposed to

three in the United States. Thus, U.S.

Members’ trades will not settle on the

normal U.S. cycle, but on the U.K. cycle.

III. Trading by U.S. Members

The Exchange would permit U.S.

Persons to become Members in

accordance with its normal business

procedures. However, to comply with

the U.S. securities laws, the Exchange

would offer two different levels of

service—one for all U.S. Members

(‘‘Public Market’’) and one limited to

U.S. Members who are non-U.S.

persons, international agencies or

‘‘qualified institutional buyers’’

(‘‘QIBs’’) as defined in Rule 144A under

the Securities Act of 1933 11 (‘‘Securities

Act’’) (‘‘QIB Market’’). Bids and offers in

securities registered in the U.S. in

American Depositary Receipt (‘‘ADR’’)

form or in ordinary share form would be

available in the Public Market; bids and

offers in those securities that are not

registered in the U.S. would be available

only in the QIB Market. In addition,

U.S. Members in the QIB Market would

be required to resell any securities

purchased on the Exchange through the

Exchange or outside the United States.

Such resales would be limited to other

QIBs, international agencies, and nonU.S. persons.

Other than these restrictions, U.S.

Members would trade on the Exchange

under the same terms as non-U.S.

Members.12 For example, both periodic

and instant auctions would take place

on both the QIB and the Public Market.

The type of auction that occurs would

vary from security to security based on

criteria unrelated to the security’s

registration status in the U.S. U.S.

Members would also trade on the

Exchange during London business

hours.13 In addition, U.S. Members

would be subject to the same fees as all

other Members.14 As mentioned above,

trades involving a U.S. Member would

settle through the LCH in the normal

U.K. settlement cycle.

IV. Exemption Standards

Section 5 of the Exchange Act

requires that all exchanges subject to the

jurisdiction of the United States either

register with the Commission as a

national securities exchange or obtain a

Commission exemption from that

requirement.15 Section 5 authorizes the

Commission to grant an exemption from

registration if the Commission finds

that, ‘‘by reason of the limited volume

of transactions effected on [the]

exchange, it is not practicable and not

necessary or appropriate in the public

interest for the protection of investors’’

to require such registration.16

In its order granting a limited volume

exemption from registration as an

exchange to the Arizona Stock Exchange

(‘‘AZX’’),17 the Commission used the

‘‘present volume levels of fully

regulated national securities exchanges’’

as the benchmark for low volume for
Federal Register / Vol. 63, No. 131 /Thursday, July 9, 1998 / Notices 37149

18 Id. at 17.

19For calendar year 1990, this was the Cincinnati

Stock Exchange (‘‘CSE’’). In 1990 the CSE’s average

daily trading volume, expressed in shares, was

1,238,241. In 1996, AZX’s volume threshold was

increased to 5,965,346 shares, which was the

average daily volume of shares traded on the

Philadelphia Stock Exchange (‘‘Phlx’’) in 1995. In

1995, the Phlx was the national securities exchange

with the lowest average daily volume.

20As of June 30, 1998, the Exchange traded 72

securities whose issuers also have securities

registered in the United States. This number may

change in the future, as issuers’ registration status

under the Exchange Act changes. As a condition to

an exemptive order, the Exchange would be

required to inform the Commission of any changes

in the registration status of the securities it trades.

As described above, the registration status of a

given security under the Securities Act and under

the Exchange Act has an effect on how it will be

traded through the Tradepoint System in the U.S.

21Similarly, it would be appropriate to consider

the primary market in any other country from

which a low volume exchange was applying for an

exemption as a benchmark, as well as the volume

levels of U.S. national securities exchanges.

22Securities Industry Association, 1996

Securities Industry Fact Book at 45.

23See Application of Tradepoint Investment

Exchange, Amendment No. 2, Exhibit N, available

in the Commission’s Public Reference Room.

24According to the Exchange, commissions in the

United Kingdom are also based on a percentage of

the share price, rather than on the number of shares

purchased.

25For example, British Airways PLC (‘‘BAB’’) is

traded on the New York Stock Exchange (‘‘NYSE’’)

in ADR form. On June 26, 1998, BAB closed at 106

7/16. The ADR ratio for BAB is 10:1; thus, each

ADR is equivalent to ten ordinary shares. Glaxo

Welcome PLC (‘‘GLX’’) is also traded on the NYSE

in ADR form. On June 26, GLX closed at 61 3/16.

The ADR ratio for GLX is 2:1. SmithKline Beecham

PLC (‘‘SBH’’) is also traded on the NYSE in ADR

form. On June 26, SBH closed at 61 1/8. The ADR

ratio for SBA is 5:1. These securities would all be

available for trading through the Exchange in their

ordinary share form in the U.S. if the Exchange

receives an exemption from exchange registration.

26See Application of Tradepoint Investment

Exchange, Amendment No. 2, Exhibit N, available

in the Commission’s Public Reference Room.

27The Average price of shares traded on all

regional exchanges in 1997 was $42.20. Thus, $40

million is equivalent to significantly less than 1.2

million shares a day, which was the original

volume limitation placed on AZX.

28 17 CFR 240.6a–1, 17 CFR 240.6a–2, 17 CFR

240.6a–3 and 17 CFR 240.24b–1. Rules 6a–1, 6a–2

and 6a–3 have been proposed to be amended in the

Commission’s release on the regulation of

alternative trading systems. See Regulation ATS

Proposing Release supra note 15. Should the

proposed rules be adopted, the Commission would

re-evaluate the appropriateness of the exemption

from Rules 6a–1, 6a–2 and 6a–3 for the Exchange.

29 17 CFR 240.17a–23. Rule 17a–23 is proposed to

be repealed in the Commission’s release on the

regulation of alternative trading systems. See

Regulation ATS Proposing Release, supra note 15

at IV.A. The recordkeeping requirements currently

imposed under Rule 17a–23. however, would still

be required under amendments to Rules 17a–3 and

17a–4 if the proposed rules are adopted. Because

the Exchange’s volume information would be

needed by the Commission to determine if the

thresholds had been reached, the Exchange would

still be required to report volume information as

outlined here.

AZX.18 Consequently, AZX’s exemption

order was conditioned upon its volume

staying below that of the registered

national securities exchange with the

lowest average daily volume.19

Pursuant to a condition in the order

granting relief from registration as an

exchange, AZX trades only securities

registered under the Exchange Act. As

was the case with AZX, however, the

Exchange has no U.S. operating history,

so it is virtually impossible to predict

what the Exchange’s U.S. volume would

be. The Exchange, however, currently

trades certain securities listed on the

LSE, only some of which are registered

in the United States and trade on a

market here, either as ADRs or as

ordinary shares.20 Therefore, the

Commission believes that AZX’s

exemption standards are not the best

benchmark for the Exchange. The

Commission believes it is appropriate to

consider the volume levels of the

primary stock exchange in the U.K., the

LSE, as well as the volume levels of U.S.

national securities exchanges.21

Trading volume in the United States

is generally measured in shares. In 1990,

when AZX was granted an exemption,

the average daily volume of all regional

stock exchanges was 24.5 million shares

and the average price of shares traded

was $28.51.22 In 1997, the average daily

volume of all regional stock exchanges

was 59.2 million shares and the average

price of shares traded was $42.20. In

1997, the average daily volume on the

LSE was 1.1 billion shares and the

average price of shares traded was

$6.04.23 By contrast, the average daily

volume of the Exchange in 1997 was 3.1

million shares.

As the numbers cited above for the

LSE and the Exchange illustrate, the

Exchange is a low-volume market in its

home country. The Exchange’s average

daily volume in 1997 was significantly

less than one percent of the LSE’s

average daily volume.

In the United Kingdom, the monetary

value of trading is the common measure

of a securities transaction and of overall

market activity.24 In the U.K., share

prices are roughly one-seventh of what

they are in the U.S. for a comparable

security. This difference in share price

is also reflected in the trading of ADRs

in this country, where each ADR is

generally a multiple of the ordinary

shares that are traded on the LSE.25

Because of this difference in share

price and volume, average daily share

volume is not the best measure for a

U.K. Recognized Investment Exchange

proposing to operate as a limited

volume exchange in the U.S. The

average daily volume of the Exchange in

1997 was 3.1 million shares, and the

average price of shares traded was

$5.61.26 This average daily volume,

however, may not be indicative of what

the Exchange’s U.S. volume would be.

In order to adjust for these factors, the

Commission is proposing to grant the

Exchange’s application for exemption

from exchange registration, using dollar

value as a benchmark for volume, rather

than average daily number of shares

traded. This will permit the Exchange to

operate in the U.S. under a benchmark

which more appropriately reflects the

difference in dollar value between U.S.

and U.K. markets, and the difference in

the way trading is measured in the U.K.

In addition, the Commission is

proposing to condition the Exchange’s

operation in the U.S. upon it remaining

a low volume exchange in the U.K.

Under the proposed Exemption, the

Exchange would be exempt so long as

(i) the average daily dollar value of

trades (measured on a quarterly basis)

involving a U.S. Member did not exceed

$40 million,27 and (ii) its worldwide

average daily volume (measured on a

quarterly basis) did not exceed ten

percent of the average daily volume of

the LSE. The limitation on the

Exchange’s worldwide trading volume

would ensure that the Commission

could reevaluate the appropriateness of

the low volume exemption should the

Exchange achieve significant volume

relative to the LSE.

The Commission also proposes to

exempt the Exchange from Rules 6a–1,

6a–2, 6a–3 and 24b–1 under the

Exchange Act.28 Rules 6a–1, 6a–2 and

6a–3 set forth the procedures regarding

amendments and supplemental material

exchanges must file. Essentially the

same information required by these

rules will be provided to the

Commission by the Exchange under the

other conditions the Division of Market

Regulation is proposing (see V.

Conditions, below). To require the

Exchange to comply with these rules

would be duplicative, and would not

result in the Commission receiving the

materials in as useful a form as

proposed under the conditions set forth

here.

Rule 24b–1 requires an exchange to

make a copy of statements and exhibits

filed with the Commission available to

the public at its offices during

reasonable business hours. Some of the

information the Commission is

proposing that the Exchange be required

to file, however, is volume information

which is substantially similar to the

information required of broker-dealer

trading systems under Rule 17a–23.29

Information filed pursuant to Rule 17a–

23 is confidential, and is not required of

exchanges. In addition, the Commission
37150 Federal Register / Vol. 63, No. 131 /Thursday, July 9, 1998 / Notices

30The anti-waiver provision of the Exchange Act

can be found in Section 29(a).

is proposing that the Exchange provide

certain trading data regarding trades

involving U.S. Members and trades

involving non-U.S. Members. This data

is confidential and proprietary and

would not otherwise be public. Data of

this nature is not currently required

from any other registrant. This data is

necessary so that the Commission may

monitor the Exchange’s compliance

with the proposed volume limitations.

For these reasons, and because the

Exchange will have no offices in the

U.S. and therefore would be making

such information public in the United

Kingdom, the Commission proposes to

exempt the Exchange from Rule 24b–1

as well.

V. Conditions

The Commission proposes to impose

other conditions on the Exchange

besides the low volume requirements

discussed above. In general, these

conditions would allow the Commission

to monitor the Exchange for compliance

with all applicable sections of the

Securities Act and the Exchange Act

(such as the anti-fraud and securities

registration sections), and would ensure

that the Commission has access to

books, records and personnel of the

Exchange should the need arise.

Specifically, the Commission

proposes to impose the following

conditions on the operation of the

Exchange in the U.S.: the Exchange

would keep and provide to the

Commission upon request (a) records

regarding the identity of U.S. Members

in the Tradepoint System and the

identity of those denied participation in

the Tradepoint System and the reason

for such denial, as well as a description

of the reason for terminating any former

Member’s capacity to use the

Tradepoint System; (b) records

regarding daily summaries of trading

and time-sequenced records of each

transaction involving a U.S. Member; (c)

information disseminated to U.S.

Members, such as quotation and

transaction information regarding

securities traded through the Tradepoint

System, as well as market notices to

Members and other communications

(such as changes to the Market Rules);

(d) daily pound and equivalent dollar

value transactions, and daily share

volume of business transacted through

the Tradepoint System (separately for

orders entered by non-U.S. and U.S.

Members, and in the aggregate); (e) a list

of securities for which U.S. orders are

accepted; and (f) copies of Member

application and criteria standards for

selection used by the Exchange. The

Exchange would also provide 30 days

prior notice to the Commission of any

material changes in the operation of the

Tradepoint System.

Furthermore, the Exchange would

supply to the Commission on a

quarterly basis within thirty days of the

end of each quarter: total volume and

average daily volume of transactions

effected through the system during the

period and year-to-date aggregates of

these numbers, expressed in (a) number

of units of securities (for transactions in

stock, number of ordinary shares; for

transactions in securities other than

stock, other appropriate commonly used

measure of value of such securities); (b)

number of transactions; and (c)

monetary value (for transactions in

stock, pound value and equivalent

dollar value; for transactions in

securities other than stock, other

appropriate commonly used measure of

value of such securities and equivalent

dollar value). The Exchange would

provide separate unit, transaction, and

monetary volume and average daily

volume information for the period

covered by the report reflecting: (i)

Tradepoint System activity in securities

involving a U.S. Member and; (ii)

Tradepoint System activity in securities

not involving a U.S. Member. The

primary market and hours for each type

of security would also be identified.

The Exchange would also be required

to adopt and implement procedures to

conduct surveillance of trading by

Exchange employees and adopt

requirements to ensure the nondisclosure of confidential information in

the possession of Exchange employees.

In addition, in response to regulatory

trading halts on U.S. markets, the

Exchange would be required to either

suspend trading on the Tradepoint

System for U.S. Members or consult

with the Commission with respect to a

possible suspension of trading;

cooperate with any investigation in

connection with trading on the

Tradepoint System conducted by the

Commission, including allowing

Commission staff access to the facilities,

books and records and other documents,

as well as employees for interviews; and

to provide the Commission with any

requested information (including

documents) in connection with trading

on the Tradepoint System. The

Exchange would also be required to

continue to operate at all times in

accordance with all applicable U.K.

laws. The Exchange would also be

required to maintain an agent for service

of process in the U.S. at all times that

it was offering its services in the U.S.

The Exchange would also be required

to maintain, at all times, certain

provisions in its Member Agreement

and its Market Rules relating to choice

of law and choice of forum. Specifically,

the Exchange would be required to

retain provisions requiring that, in the

event of a dispute involving a Member

arising out of a transaction that occurred

in the U.S., or that resulted in damages

suffered in the U.S., the U.S. federal

securities laws statutes would be

applied if the cause of action is based

upon fraudulent acts or omissions.

These provisions are designed to satisfy

the anti-waiver provision of the

Exchange Act.30

The Exchange would also be required

to disclose to its U.S. Members

information regarding the trading

priorities of the Exchange and the

response time of orders entered into the

Tradepoint System by U.S. Members as

compared to the response time of orders

entered by European or other non-U.S.

Members. In addition, the Exchange

would be required to disclose that the

nature and timeliness of pre-trade and

post-trade information provided by the

Exchange differ from that provided by

U.S. registered securities exchanges.

Such information should include

notification that trades executed

through the Exchange are not reported

to the U.S. Consolidated Tape; a

description of clearance and settlement

procedures and disclosure that the time

for clearance and settlement under U.K.

law is the date of the transaction plus

five business days, as compared to three

business days under U.S. law; and

disclosure of any Tradepoint System

limitations affecting capacity to

disseminate timely information or to

handle Members’ orders during peak or

other periods.

In addition, the exemptive order

would be subject to amendment were

the Exchange to offer trading in

securities listed on any market (in the

U.K. or otherwise) other than the LSE.

VI. Conclusion

The Commission believes that

permitting the Exchange to operate in

the U.S. would provide U.S. investors

with greater opportunities to invest in

foreign securities. At the same time, the

Commission is concerned that U.S.

investors who utilize the Exchange are

afforded sufficient protection.

Accordingly, the Commission requests

comment regarding the Exchange’s

application for a limited volume

exemption from registration as a

national securities exchange under the

Exchange Act. In particular, the

Commission requests comment on: (1)

Whether the Commission should grant

the Exchange the exemption it seeks; (2)
Federal Register / Vol. 63, No. 131 /Thursday, July 9, 1998 / Notices 37151

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Rule 905 states ‘‘no member or member

organization shall exercise, for any account in

which such member or member organization has an

interest or for the account of any partner, officer,

director or employee thereof or for the account of

any customer, a long position in any option contract

of a class of options dealt in on the Exchange if as

a result thereof such member or member

organization, or partner, officer, director or

employee thereof or customer acting alone or in

concert with others, directly or indirectly has or

will have exercised within any five (5) consecutive

business days aggregate long positions in excess of:

(i) the number of option contracts set forth as the

position limit in Rule 904 in a class of options for

which the underlying security is a stock. * * *’’

4Exchange Act Release No. 39489 (December 24,

1997), 63 FR 276 (January 5, 1998).

5See Exchange Act Release No. 38248 (February

6, 1997), 62 FR 6474 (February 12, 1997) (adopting

Risk Based Haircuts); and Amex Rule 462.

6Exchange Act Rule 13d–1.

7The Commission notes that issuers would, of

course, need to comply with all applicable

provisions of the federal securities laws in

conducting their share repurchase programs.

whether dollar value volume is an

appropriate measure for determining

limited volume; and (3) what conditions

should apply to such an exemption.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18151 Filed 7–8–98; 8:45 am]

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40159; File No. SR–Amex–

98–22]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the American Stock Exchange, Inc.,

Relating to an Increase in Position and

Exercise Limits for Standardized

Equity Options

July 1, 1998.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule

19b–4 thereunder,2 notice is hereby

given that on June 24, 1998, the

American Stock Exchange, Inc.

(‘‘Amex’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) the proposed

rule change as described in Items I, II

and III below, which Items have been

prepared by the self-regulatory

organization. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Amex proposes to amend

Exchange Rule 904 to increase position

and exercise limits for standardized

equity options to three times their

current levels.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization included

statements concerning the purpose of

and basis for the proposed rule change

and discussed any comments it received

on the proposed rule change. The text

of these statements may be examined at

the places specified in Item IV below.

The self-regulatory organization has

prepared summaries, set forth in

sections A, B and C below, of the most

significant aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The Amex is proposing to increase the

position and exercise limits for equity

options traded on the Exchange to three

times their current levels. Currently,

Amex Rule 904 subjects equity options

to one of the five different position

limits depending on the trading volume

and outstanding shares for the

underlying security. Rule 905

establishes exercise limits for the

corresponding options at the same

levels.3 The limits are: 4,500; 7,500;

10,500; 20,000; and 25,000; contracts on

the same side of the market. Under the

proposed changes the new limits will

be: 13,500; 22,500; 31,500; 60,000; and

75,000. The Exchange believes

sophisticated surveillance techniques at

options exchanges adequately protect

the integrity of the markets for the

options that will be subject to these

increased position and exercise limits.

Manipulation. The Amex believes that

position and exercise limits, at their

current levels, no longer serve their

stated purpose. The Commission has

stated that:

Since the inception of standardized

options trading, the options exchanges have

had rules imposing limits on the aggregate

number of options contracts that a member

or customer could hold or exercise. These

rules are intended to prevent the

establishment of options positions that can

be used or might create incentives to

manipulate or disrupt the underlying market

so as to benefit the options position. In

particular, position and exercise limits are

designed to minimize the potential for minimanipulations and for corners or squeezes of

the underlying market. In addition, such

limits serve to reduce the possibility of

disruption of the options market itself,

especially, illiquid options classes.4

On the twenty-fifth anniversary of

listed options trading, the Exchange

believes that the existing surveillance

procedures and reporting requirements

at options exchanges and clearing firms

that have been developed over the years

are able to properly identify unusual

and illegal trading activity. In addition,

Amex believes that routine oversight

inspections of Amex’s regulatory

programs by the Commission have not

uncovered any material inconsistencies

or shortcomings in the manner in which

the Exchange’s market surveillance is

conducted. These procedures entail a

daily monitoring of market movements

via automated surveillance techniques

to identify unusual activity in both the

options and underlying stock. Further,

the Exchange believes the significant

increases in unhedged options capital

charges resulting from a September 1997

adoption of risk-based haircuts and the

Exchange margin requirements

applicable to these products under

Exchange rules serves as a more

effective protection than position

limits.5

Further, large stock holdings must be

disclosed to the Commission by way of

Schedule 13D or 13G.6 Options

positions are part of any reportable

positions and cannot be legally hidden.

In addition, Exchange Rule 906—which

requires members to file reports with

the Exchange for any customer who

held aggregate long or short positions of

200 or more option contracts of any

single class for the previous day—will

remain unchanged and an important

part of the Exchange’s surveillance

efforts.

Position and exercise limits restrict

legitimate options use. In the

Exchange’s view, equity position limits

prevent large customers like mutual

funds and pension funds from using

options to gain meaningful exposure to

individual stocks, resulting in lost

liquidity in both the options market and

the stock market. The Exchange further

believes that equity position limits also

act as a barrier to the use of options by

corporations wishing to implement

options strategies with their own stock.

For example, existing equity position

limits could restrict the number of put

options that could be sold under a

corporate buyback program.7

Financial requirements. The

Exchange believes that financial

requirements imposed by the Exchange

and by the Commission adequately

address concerns that a member or its

customer may try to maintain an